Analysis

Stock markets: A Giant Gambling den

WHEN TV news bulletins try to explain financial matters they tend to lose their audience in a complex fog of FTSEs, Nasdaqs, trade deficits and so on.

Small wonder that it took Karl Marx over 30 years' work to produce the three volumes of Capital and associated notebooks over 130 years ago.

Since then capitalism has become even more complex but socialists need to understand the capitalist system in order to pose a more rational, socialist alternative.

In particular, the stock exchanges and related institutions of financial capitalism appear to have gained importance in recent decades as indicators of capitalism's health. So what are the various stock exchanges, how important are they, how do they work and do socialists think they should be abolished?

Most countries have a stock exchange, some countries have more than one. Stock exchanges are marketplaces for buying and selling shares in public companies, those firms that allow other people to buy a stake in themselves by purchasing shares.

Companies sell shares to raise money supposedly for them to develop and expand their business. Investors choose to buy shares rather than putting money in a bank or building society because they hope for a better return for their money.

There are two ways this happens. Firstly any company that issues shares is expected, after they publish their annual report, to issue a dividend on their profits. So, for example, if a person had 100 shares at £1 a piece and announced a dividend of 8% then you would get an £8 return on your shares.

But this can also increase your wealth in another way. If this company result is seen as being good then that can make those shares more sought after. This will push the share value up. So say the shares may increase in price from £1 to £1.50 a share.

This now means that after one year you get an £8 return from the company you invested in and notionally at least - depending on whether or not your shares are sold - you could get another £50 back.

Shares are bought and sold extremely frequently on stock markets. Basically big financial institutions, including pension funds for unions and companies, play the market every day trying to get the best return.

They take these massive gambles, trying to predict using all the available information how well a company is doing, what their future prospects are likely to be and whether their shares will increase or decrease in value given the current state of the stock exchange and capitalism generally.

The main factor in determining this is how profitable they think a company will be. This is known as the prices-earnings ratio.

Socialist Planning

In the US and Britain the largest 100 companies are on the Dow Jones index and the FTSE 100 respectively. In both countries there are other stock markets such as the US Nasdaq, the second biggest financial market in the world after the Dow Jones, and the Techmark 100 in Britain. Again, there are national variations of these stock markets in all the major advanced capitalist countries.

Socialists believe that stock markets are essentially giant gambling dens for capitalists to raise and make more money.

They rarely invest their own money to gamble with, instead utilising the money in working-class people's savings and pensions funds. But these parasites are quick to take the profits and quickly pass on any losses to small investors.

Under a socialist society there would be no need for such parasitic excesses as the stock markets and financial institutions. Manufacturing and services in society would be financed under a national plan where the surplus produced in society, now creamed off by the capitalists as profit, would be used for research and development, expansion and creating new wealth.

This socialist plan would be managed and controlled by working-class people, the majority in society, who stand to benefit from a harmonious development of society's productive capacity and wealth.